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Countrywide Loses Legal Battle to Escape Obligations to Investors in Securitized Mortgages

August 26, 2009

A judge has ruled that federal legislation does not allow Countrywide Financial to void its contracts with investors, the New York Times reported Aug. 19. The ruling means that investors in mortgage-backed securities may go forward with their lawsuit against Countrywide. That lawsuit seeks to enforce contracts saying Countrywide will buy back loans from the investors if it modifies those loans. The ruling was closely watched because its precedent may affect investors in mortgage-backed securities at other lenders, which are under intense political pressure to modify loans.

The current lawsuit was sparked after Countrywide, formerly one of the nation's leading subprime lenders, settled a predatory lending lawsuit brought by state attorneys general around the U.S. In that settlement, it agreed to modify thousands of loans made under unfair or suspicious circumstances. Investors sued to ensure that the buy-back provision would be honored, but Countrywide argued that the suit was automatically voided by the Helping Families Save Their Homes Act of 2009. That law gave lenders like Countrywide "safe harbor" from investor lawsuits stemming from the modifications. Nonetheless, federal Judge Richard Holwell in New York ruled that federal law did not apply, and that investors should have a chance to prove their case in state court.

A spokesperson for Bank of America, which bought Countrywide in 2008, pointed out that the ruling did not invalidate the safe harbor argument entirely; it just moved the proceedings to state court. However, as Carson loan modification lawyers, we believe this ruling could be bad for homeowners seeking loan modifications. The safe harbor law was intended to encourage lenders to allow loan modifications, despite pressure from investors concerned that modifications would hurt their investments. If that provision is evaded or invalidated, lenders could face a flood of lawsuits similar to this one. And that would provide a powerful incentive to lenders to do even less than the little they already do to help struggling homeowners change their loans.

The Anaheim law firm of Howard Law LLP has an active loan modification practice serving borrowers throughout California. We frequently step in after our clients' own efforts to get their lenders to consider a loan modification have failed. As Fontana loan modification attorneys we offer a key advantage over fighting the bank alone: We can and will file lawsuits when our clients' rights are violated. That includes times when the lender incorrectly denies a modification; grants one and changes its mind for arbitrary or false reasons; or forecloses despite months of assuring clients that a modification is in the works. The goal for our Oceanside loan modification lawyers is always to get clients a loan workout that lowers their monthly payments to realistic and sustainable amounts.

If you're sick of fighting your lender for a chance to save your home and you're ready to seek help, you should contact Howard Law as soon as possible. We offer confidential consultations at absolutely no cost to potential clients. To set one up, please contact us online or call 1-800-872-5925, toll-free.